MSMEs with credit guarantee to get bank loan at differential rate

Mumbai, Apr 15 (KNN) While pricing the loans to micro and small enterprise (MSE) borrowers, the RBI has advised banks to take into account the incentives available to them in the form of the credit guarantee cover of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and the zero risk weight for capital adequacy purpose for the portion of the loan guaranteed by the CGTMSE and provide differential interest rate for such MSE borrowers, than the other borrowers.

However, banks should note that such differential rate of interest is not below the Base Rate of the bank, RBI said.

“Further, banks are advised to undertake a review of their loan policy governing extension of credit facilities to the MSE sector, with a view to using Board approved credit scoring models in their evaluation of the loan proposals of MSE borrowers,” the RBI added.

“With a view to ensuring fair and transparent credit pricing and to give a fillip to the flow of credit to micro and small enterprises (MSEs) borrowers, it would be desirable for SCBs (Scheduled commercial banks) to provide differential interest rates for MSEs and other borrowers whose loans are covered under the credit guarantee scheme.

SCBs are encouraged to undertake a review of their loan policy governing extension of credit facilities to the MSE sector and should consider using Board approved credit scoring models in their evaluation of the loan proposals of MSE borrowers,” RBI proposed the measure to be adopted by banks in order to give a fillip to the flow of credit to micro and small enterprises (MSEs) borrowers.

Earlier, retaining the policy interest rates unchanged and disappointing the industry, the RBI has advised the commercial banks to offer differential interest rates to micro and small enterprises (MSEs) and other borrowers whose loans are covered under the credit guarantee.

Unveiling the first bi-monthly monetary policy, RBI Governor Raghuram Rajan had said, “With a view to ensuring fair and transparent credit pricing and to give a fillip to the flow of credit to micro and small enterprises (MSEs) borrowers, it would be desirable for SCBs to provide differential interest rates for MSEs and other borrowers whose loans are covered under the credit guarantee scheme.

“SCBs are encouraged to undertake a review of their loan policy governing extension of credit facilities to the MSE sector and should consider using Board approved credit scoring models in their evaluation of the loan proposals of MSE borrowers,” he added.

The Reserve Bank also released a concept paper on Trade Receivables and Credit Exchange for micro, small and medium enterprises (MSMEs) in March 2014 on its website for public feedback.

The model outlined in the paper envisages a credit exchange with both primary and secondary market segments that will help address problems faced by the MSME segment on delayed payments and dependency on their corporate buyers.

The Reserve Bank will work towards implementation of the model based on feedback received, it said.